Industry trying to hold on to its fiefdom trading in the dark. Note the "discussion" was not public. The info is not public. The trading is kept from the public. Are we seeing a pattern? Fails to deliver have to be kept private. Naked shorting has to be grandfathered. Self-styled "cyber sleupps" are silent or defensive on these issues yet this basic trading methodology affects the public many times more than penny ante scams.
Dark Pool Trade Limit Said to Be Cut 95% in SEC Plan (Update1)
By Jesse Westbrook and Whitney Kisling
Oct. 20 (Bloomberg) -- The U.S. Securities and Exchange Commission will propose toughening its limits on the amount of anonymous trading carried out on stock platforms called dark pools, according to two people familiar with the deliberations.
The commission will propose lowering the amount of daily volume in a company’s shares that can be executed in private on any of the networks to 0.25 percent from 5 percent at a hearing tomorrow in Washington, said the people, who declined to be identified because the discussions weren’t public. John Nester, an SEC spokesman, declined to comment.
The rule change may curtail the number of transactions on dark pools, off-exchange platforms run by firms such as Goldman Sachs Group Inc. and Getco LLC that have drawn scrutiny from Democratic Senators Ted Kaufman of Delaware and Charles Schumer of New York. The systems usually shut down trading in a security when they approach the current 5 percent limit.
“There’s a growing suspicion whether having increased activity in the dark pool is a good idea, so why not try to restrict it?” said Sang Lee, a market analyst at Aite Group LLC, a Boston-based financial-services consultant. “Their lowering the ceiling is really going to make it harder for these dark pools to experiment and to be innovative.”
Traders turn to dark pools instead of public markets such as the New York Stock Exchange to avoid revealing their identities and giving competitors clues about their strategies. Kaufman and Schumer say the platforms limit transparency in securities markets and put smaller investors at a disadvantage.
Block Trade Exemption
The SEC will exempt block trades, or orders exceeding a certain number of shares, from the new rule, according to one of the people. Firms specializing in blocks account for 8 percent of all dark-pool trading in the U.S., according to data compiled by Aite. Transactions are biggest at Liquidnet Holdings Inc. and Pipeline Trading Systems LLC, where orders average 50,000 shares. That compares with 300 to 450 shares at venues such as Getco’s GES.
Trading on systems such as Credit Suisse Group AG’s Crossfinder and Goldman Sachs’s Sigma X, the two largest, has more than quadrupled to 9.4 percent of all U.S. equity volume in three years, according to estimates by Tabb Group LLC, a New York-based financial-services consultant. Bloomberg LP, the parent of Bloomberg News, also owns Bloomberg Tradebook LLC, an electronic stock-trading network that links to dark pools.
Bigger Orders
Knight Capital Group Inc., a provider of trade execution services and one of the largest traders of U.S. stocks by volume, fell as much as 4.2 percent to $21.58 today, while Investment Technology Group Inc., the owner of the oldest block- trading equity system, fell as much as 8.2 percent. Shares of Nasdaq OMX Group Inc., owner of the second-largest U.S. equity exchange, climbed as much as 2.1 percent to $20.28.
Investors use dark pools to execute bigger orders and avoid revealing details such as price and size that could move a stock, according to Lee. The growth is creating an uneven playing field with traditional markets, which face more regulation, the World Federation of Exchanges said in a letter last month to Mario Draghi, chairman of the financial-stability board of the Basel-based Bank for International Settlements.
‘Siphon Off’
“The more the dark pools exist without any comprehensive regulation, the more you’re going to see liquidity siphon off from exchange markets,” Chicago Board Options Exchange Chief Executive Officer and WFE Chairman William Brodsky said at a conference in Vancouver on Oct. 7.
NYSE Euronext, the operator of the largest U.S. equity exchange, will begin publishing how much stock trading is conducted on dark pools every day on its Web site. The NYSE will let firms that run the private networks display trading volume starting in November, the company said in a statement today. Barclays Plc, Getco LLC, Goldman Sachs, Knight Capital Group Inc. and UBS AG plan to participate, NYSE Euronext said.
Dark networks “can arbitrarily decide who gets to play in their pool and who doesn’t,” said Dan Mathisson, head of Credit Suisse’s algorithmic unit. “That’s something that needs to get cleaned up.”
To contact the reporters on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net; Whitney Kisling in Scottsdale, Arizona at wkisling@bloomberg.net.
Last Updated: October 20, 2009 14:07 EDT
bloomberg.com |
